The funded status of U.S. corporate defined benefit plans fell slightly in the first quarter of 2015, said reports from BNY Mellon and Legal & General Investment Management America.
The funding ratio of a typical corporate defined benefit plan fell 10 basis points in the quarter as liabilities rose faster than assets, said the BNY Mellon Institutional Scorecard.
For the three months ended March 31, liabilities rose 2.79%, the result of a 14-basis-point drop in the discount rate to 3.86%, according to BNY Mellon. During the same period, assets rose 2.61% from positive performance in most asset classes, said Andrew D. Wozniak, director and senior investment strategist in the investment strategy and solutions group within BNY Mellon Investment Management.
International equities, U.S. small-cap equities and long Treasuries had the strongest returns for the quarter at 4.9%, 4.3% and 3.96%, respectively. In fact, a higher allocation to long Treasuries helped corporate plans outperform public DB plans, and endowments and foundations, which retuned 2.24% and 1.72%, respectively, for the quarter, Mr. Wozniak said in a telephone interview.
Separately, LGIMA found that the funding ratio of a typical DB plan declined 140 basis points to 81.7% in the first quarter.
Liabilities rose 3.8 percentage points, the result of a 19-basis-point drop in the discount rate to 3.8% that outweighed a 2.2 percentage-point increase in assets, said LGIMA’s quarterly Pension Fiscal Fitness Monitor.
“We continue to see significant interest in equity replication strategies from corporate pension plans, as plan sponsors seek to utilize capital most efficiently to control funded status outcomes. In particular, option-based strategies optimized for the current market environment have been popular with our clients,” said Donald Andrews, head of LDI strategy at LGIMA, in a news release.
The LGIMA Pension Fiscal Fitness Monitor assumes an investment strategy of 60% global equity and 40% aggregate fixed income.